Operating income for the current quarter was negatively impacted by $1.6 million in severance and relocation fees, $2.2 million for the settlement of an outstanding lawsuit and $1.0 million for legal and other fees related to ongoing contingencies. The company also recorded a one-time tax benefit of $1.6 million resulting from a change in the Canadian tax law. Without these items, net income would have been $6.7 million, or $0.17 per share.

Top Drives Segment:

Revenues from the Top Drive segment for first quarter of 2009 were $68.1 million, down 24% from revenues of $90.0 million in fourth quarter of 2008, mainly due to a decrease in Top Drive sales. Top Drive sales for first quarter of 2009 included 32 units (31 new units sold and 1 from the rental fleet). This compares to record number of 38 units (37 new units sold and 1 from the rental fleet) sold in fourth quarter of 2008 and 31 units sold in first quarter of 2008 (25 new and 6 from the rental fleet).

At March 31, 2009, Top Drive backlog was 35 units, with a total value of $34 million, versus 65 units at December 31, 2008, with a total value of $57 million. This compares to a backlog of 39 units at March 31, 2008 with a total value of $41 million.

Operating days for the Top Drive rental fleet decreased to 4,673 for first quarter of 2009 compared to 5,808 in fourth quarter of 2008 and 5,689 in first quarter of 2008, mainly due to a fall off of rental activity in North America directly resulting from the decline in rig count.

The company’s Top Drive operating margins were 23% in first quarter of 2009 compared to 29% in fourth quarter of 2008 and 29% in first quarter of 2008. The margin decrease compared to fourth quarter of 2008 is due to the sale of smaller Top Drive units during the current quarter, decreased rental activities, lower margins in the company’s aftermarket business and severance costs of $0.4 million.

Tubular Services Segment:

Revenues from the Tubular Services segment for first quarter of 2009 were $37.0 million, a decrease of $6.0 million from fourth quarter of 2008, mainly related to a decline in the company’s conventional revenues, but partially offset by an increase in the company’s proprietary revenues. The company’s conventional business is mainly conducted in North America and is directly tied to the rig count which has sharply declined over the past six months.

The company performed a record total of 562 proprietary casing running jobs in first quarter of 2009 compared to 540 in fourth quarter of 2008 and 460 in first quarter of 2008. The company remains focused on converting the market to running casing with the company’s proprietary CDS technology.

Operating Income in the company’s Tubular Services segment for first quarter of 2009 was $2.7 million, compared to $5.0 million in fourth quarter of 2008 and $6.0 million in first quarter of 2008. First quarter of 2009’s operating income was unfavorably impacted by lower activity and pricing pressure in North America and severance costs of $0.2 million.

Casing Drilling Segment

Casing Drilling revenue in first quarter of 2009 was $5.1 million, compared to $6.4 million in fourth quarter of 2008 and $6.4 million in first quarter of 2008. The decrease in first quarter of 2009 compared to the fourth quarter of and first quarter of 2008 was mainly due to lower revenue in Latin America.

Operating Loss in the company’s Casing Drilling segment for first quarter of 2009 was $1.4 million, compared to $3.4 million in fourth quarter of 2008 and $2.6 million in first quarter of 2008. As percentage of revenues, operating margin was a loss of 27% compared to a loss of 54% in fourth quarter of 2008 and a loss of 41% in first quarter of 2008. The improvement in the company’s margins was due to strong efforts made by the company’s Casing Drilling team to maximize operating synergies and reduce costs.

Other Segments and Expenses

Corporate costs for first quarter of 2009 were $10.7 million, compared to $7.9 million for fourth quarter of 2008 and $8.0 million in first quarter of 2008. This increase was mainly due to a litigation settlement of $2.2 million, $0.6 million in severance costs recorded in first quarter of 2009 and higher legal costs incurred during the quarter associated with patent litigation.

Total Selling, General and Administrative costs in first quarter of 2009 were $13.6 million compared to $12.1 million in fourth quarter of 2008 and $13.4 million in first quarter of 2008, due to the litigation settlement and severance costs discussed above, partially offset by lower bonus accruals recorded in first quarter of 2009 compared to fourth quarter of 2008.

Research and Engineering costs for first quarter of 2009 of $2.6 million were down from $2.9 million in fourth quarter of 2008 and $2.8 million in first quarter of 2008. The company plan to continue to invest in the company’s proprietary technology through 2009.

Other Income and Expense, excluding net interest expense, for first quarter of 2009 totaled income of $0.2 million, compared to income of $1.4 million for fourth quarter of 2008 and expense of $1.6 million in first quarter of 2008. Other Income for first quarter of 2009 included $0.1 million of gains on foreign exchange valuations, while Other Income for fourth quarter of 2008 included a gain of $1.1 million related to foreign exchange valuations. Other Expense for first quarter of 2008 mainly consisted of $1.7 million in foreign exchange losses.

The company’s effective tax rate for first quarter of 2009 was a benefit of 21% compared to a provision of 31% in fourth quarter of 2008 and a provision of 22% in first quarter of 2008. During the first quarter of 2009, a new Canadian tax law was passed, and the effect was a one-time tax benefit of $1.6 million to the Company’s income tax expense. Excluding this one-time tax benefit, the company’s effective tax rate was a provision of 24%.

Financial Condition:

At March 31, 2009, cash and cash equivalents increased to $22.3 million from $20.6 million at December 31, 2008, while debt decreased during the same period by $2.7 million. The company’s net debt of $24.6 million at March 31, 2009 represents a net debt to book capitalization of 6.4%. Net debt was $29.0 million at December 31, 2008 and $71.7 million at March 31, 2008.

Total capital expenditures were $5.2 million in first quarter of 2009, compared to $21.6 million in fourth quarter of 2008 and $20.1 million in first quarter of 2008. The company projects the company’s total capital expenditures for 2009 to be around $20 to $30 million.

Julio Quintana, Tesco’s chief executive officer, commented In light of the current economic environment, we are satisfied with the company’s first quarter of results. Revenue from the company’s proprietary tubular business set another record last quarter and we reduced the company’s net debt by $4.3 million. The company’s focus on Casing Drilling costs is beginning to pay off. Casing Drilling margins improved both sequentially and year over year. However, we had decreased revenues in all three of the company’s operating segments. Drilling activity, particularly in North America, declined at a pronounced rate. We are taking strong action to control the company’s costs and have reduced the company’s global headcount by around 15% during the quarter, with almost all reductions occurring in North America. The company will continue to aggressively manage all of the company’s costs. Longer term, we believe the fundamentals driving the growth of the company’s global business remain intact. This should give us the ability to maintain the company’s core strengths and weather the current downturn while sustaining free cash flow.